DP9119 | Protectionism during the crisis: Tit-for-tat or chicken games?

Publication Date

02/09/2012

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Abstract

During the recent financial crisis many countries resorted to protectionist measures to try to boost demand for domestically-produced goods. In this paper we explore the extent to which the adoption of protectionist measures led to retaliation by other countries undermining the increase in demand. We found no evidence of retaliation. On the contrary, there is strong evidence of chicken-games being played. Indeed, the probability of a protectionist measure being imposed on a trading partner's export bundle is significantly smaller when the partner imposes a protectionist measure on home exports.